Chapter 5: Emerging Technologies and Public Policy

Chapter 5 of Wharton on Emerging technologies discusses government’s role and its impact on emerging technologies. Though many new technologies are funded by government, many are skeptical about the role of government. Author says that government policy plays an important role in development and growth of the new technologies.

On page 101, Gerald.R.Faulhaber provides a list which shows government intervention (in increasing order) in new technologies:

· Institutional infrastructure: Providing legal and public institutions that encourage and discourage innovation.
· Research infrastructure: Research benefits in the field of physics, electronics, microbiology etc are non-appropriable and not many firms would be willing to invest in such fields, hence governments support research infrastructure.
· Military technology: In order to strengthen the national military capabilities, governments fund technologies related to defense.
· Government directives: Government’s direct role in encouraging or protecting the commercial exploitation of well-understood technologies.
· Standard setting: Standards set by the government rather than by a dominant firm or a patent holder in emerging industries.
· Government regulation: Innovation can be affected by government regulations; especially research related to food and drug.
· Government subsidies: This is the most interventionist method government adopted by government in supporting firms in emerging technologies.

In this chapter the author discusses how Internet has emerged and the role of government during the different phases of growth of Internet. Author suggests few lessons a manager can learn, such as government policies, in creation, development and privatization of new technologies.

Author also suggests that based on the government’s involvement in the new technologies, managers can make decisions as to what best suits their firms. Lessons provided in the chapter are as follows:

1. Government can play powerful role in the early stages of a new technology-careful monitoring of government labs and universities may give firms a head start in developing and commercializing a new technology.
2. Government withdrawal support from research is resisted by many beneficiaries- if a firm is a government beneficiary then it should lobby hard for continued subsidies.
3. If government helps in transitioning a technology from public to private, everyone will complain- transition periods are great opportunities to lobby hard and to gain competitive advantage.
4. Effect of new technologies on society may cause public concern – companies should be prepared for both positive and negative effect of public concern.
5. Legal and political reactions may arise due to the disruptions caused by new technology- managers should anticipate the disruptions that might evolve and be prepared to take advantage of the profitable opportunities that result.
6. A high-value technology may be demanded for universal service- demands for universal service can be translated into protection from competitive market.
7. If dominant firms treat their customers poorly then regulators will demand political intervention- Firms should carefully monitor customer satisfaction.
8. If a new technology is gaining significant market position and leading to monopoly then government must intervene to control monopoly through regulators or antitrust- companies should avoid situations that may cause concern among the customers and competitors.
9. If the technology leads to dominance in bottle neck market then political demand will rise to limit the firm’s ability to vertically integrate- if a firm enters a bottle neck market, it should lobby hard to keep the bottle neck firms out of its market. If a firm is bottle neck firm, then it should not invite public scrutiny.
10. Government policies and regulation may have unintended side effect or sometimes negatively impact the firm- Companies should lobby for minimalist regulation and make use of the market forces.

I think that the government spending for emerging technologies is a tricky topic. First and foremost government has the money to do it (obviously!!!) and would be the ideal one to do it as it will spur technological innovation. And if businesses succeed, government also benefits in the way of taxes and export dollars. Good ROI for the government.

For the private sector, investing in emerging technologies involves huge risk. In many cases companies will cease to exist if their investment in an emerging technology fails. Governments are unlikely to be hugely impacted if their investment in an emerging technology fails.

In developing countries the governments are cash strapped and the best thing they can do is keep out of it - rather than interfering and/or regulating sectors which spur innovation and lead to the birth of emerging technologies. They can at most offer tax breaks for technological research.

In developed countries it’s a different story (at least in the pre-recession days). I think government can fund emerging technologies that help in the field of medicine, social welfare (for example ultra-affordable hand-held computers for rural communities) and military. If the emerging technologies do not belong to the aforementioned fields it will be difficult to get tax dollars to fund these projects. As the saying goes there is a fine line between genius and insanity. Same applies to emerging technologies. Some might view it as very wise investment and some might view it money thrown away. Emerging technologies are inherently risky projects and many tax payers might oppose funding to these projects as wasteful government spending - now more than ever before.